Making A Will

Article by Peter Brown and Guy Greenhous

Originally Published in June 2003

INHERITANCE TAX

Anything passing to your spouse is free of inheritance tax. This does not apply to unmarried partners.

Anything you leave to charity is also free of inheritance tax. There are a number of other inheritance tax exemptions e.g. for business or agricultural assets.

However, if none of these apply, then it is necessary to calculate the value of your estate for inheritance tax purposes. This will include not only what you own in your own right, whether by yourself or jointly, but will also be affected by any gifts made during the seven years before your death and possibly by any interest you may have in a trust.

At current rates, inheritance tax is charged at 40%on the value of your estate, having discounted the threshold known as the nil rate band on which no tax is payable. The value of the nil rate band changes from year to year: for 2003/04 it is £255,000.

If the inheritance tax payable on your death is likely to be significant, you may wish to consider whether this can be mitigated. With careful planning, tailored to individual circumstances, substantial tax savings can be achieved.

An Enduring Power of Attorney allows you to provide a structure to deal with your financial affairs should you become incapable of dealing with them yourself as a result of illness or accident.

An Enduring Power of Attorney can have immediate effect as a normal power of attorney. However, it is possible to include a restriction so that it does not come into force until it needs to. 

If you become incapable of dealing with your own financial affairs and an Enduring Power of Attorney has not been signed, a Receiver will have to be appointed to deal with your affairs. This is a more complex, costly and lengthy procedure involving an application to the Court which can and should be avoided. 

For instance, many people assume that if they die without a will their spouse or partner will inherit everything but this is not so. A partner to whom you are legally married may not receive all your property, and unmarried partners are not automatically entitled to anything in such circumstances. It is therefore important that you make a will and that it is comprehensive.

This leaflet highlights the issues you need to consider in order to make a will. It also covers some related areas to which you may want to give further thought.

It is usually best to appoint two executors, with a possible third person named as a substitute.

This is a point which should be discussed with the suggested guardians along with your children if you feel that they are old enough to understand.

It is helpful to state these in your will as well as telling family and/or friends.

You will probably want to leave your estate to your partner if he or she survives you. This gift can be outright or, if your estate is substantial, in trust.

Any property passing to your children will be held in trust until they reach eighteen. However, your will can provide for your children's entitlement to be made dependent upon them attaining a later age (say 21 or 25 years old)if you wish. In very substantial estates, more sophisticated and flexible trusts can be established.

There are a variety of ways of doing this: 

• You can list specific items for particular individuals in your will.
• You can leave all your ‘personal chattels ’ (broadly, personal possessions such as your car and the contents of your house)to your partner or to your executors to deal with in accordance with an informal, non-binding memorandum. The memorandum can be altered by you from time to time without the need to make a new will.
• You can combine the two arrangements described above.

You should include a ‘disaster clause ’to cover the possibility of you and your family all dying together. Again, this can be an outright gift or subject to some form of trust.

There are a number of administrative provisions of a fairly standard nature to be included in a will. Their complexity will depend upon the size of your estate and the other provisions of your will.

If you have made a will but you are not married, your will automatically ceases to have effect when you marry.

If you are married and then divorce, your will is not revoked by the divorce but provisions in your will relating to your former spouse are automatically modified.

In certain circumstances a dependant or family member may have a right to claim part of your estate, even if you leave him or her nothing in your will. However, the risk of a claim may be reduced by including a statement in your will explaining your reasons for not benefiting a dependant.

Many people are surprised at the total value of their assets. Before making a will it is helpful to compile details of your assets and their approximate values, for instance:

• Your house/flat 
• Home contents 
• Any holiday home or timeshare 
• Investments 
• Cash in savings accounts 
• Pension funds 
• Life assurance policies 
• Any trust in which you or your family have an interest

If your house or flat is owned jointly by you and your partner as ‘beneficial joint tenants ’,on your death your share will pass automatically to your partner. This is called the right of survivorship and cannot be altered by your will.

On the other hand, if you own the property as ‘tenants in common ’,you can specify who is to inherit your share of the property.

Your solicitor will be able to tell you whether you own your house as beneficial joint tenants or tenants in common. They can also advise on whether you should alter this.

We suggest that you review your Will every 3-5 years or earlier if your circumstances change.

If so, you are probably entitled to a lump sum death in service benefit and you should indicate to the scheme trustee whom you wish to benefit in the event of your death. Your employer should be able to provide you with an appropriate form to complete.

As death in service benefits are generally outside the scope of inheritance tax, they can be significant when considering the possibilities of inheritance tax planning in relation to an estate.

Any personal pension plan you have will probably also include provision for a lump sum death benefit to be payable in certain circumstances. You should make sure that this benefit is nominated to, or written in trust for, the person you wish to receive it.

If so, you should ensure that the policy proceeds do not fall within your estate to avoid inheritance tax on your death. This can be achieved by declaring a simple trust over the policy and proceeds which can be in favour of, for instance, your partner and/or children.

Declaring a trust over the policy also means that it should be easy for your family or other beneficiaries to gain access to the funds quickly and easily after your death while most of your assets are still being administered.

In order to ensure that the policy can be cashed in quickly after your death, it is sensible to appoint another person to act with you as trustees of the policy.